2015 (9) TMI 228 - HC - Income Tax

Revision u/s 263 - CIT(A) setting aside the order passed by AO wherein he allowed interest paid in respect of income by way of dividend exempt under section 10(34) against taxable income, contrary to the provisions of section 14A of the Act - ITAT set aside revision orders - Held that - Under the amended provisions, the authority of the Assessing Officer has been whittled down. Jurisdiction conferred is purely an arithmetical exercise. An Assessing Officer has to look whether tax or interest is due on the basis of return filed by the assessee after adjustment or any refund is due to the assessee on the basis of return filed. Therefore, on or after 1st June, 1999 law does not confer jurisdiction on the Assessing Officer to disallow any expenditure claimed in the return of income while preparing the intimating under Section 143(1). A.O. s order u/s 143(1) preparing an intimation on 16.10.01 is not erroneous and prejudicial to the interest of the revenue mere because that no disallowance of expenditure relating to earning of exempted dividend income was made by the A.O., in his intimation sent u/s 143(1) of the Act, inasmuch as, there was no scope of making such disallowance while preparing the intimation u/s 143(1) of the Act as would be evident from the provisions contained in section 143(1) of the Act effected from 1.6.99. We, therefore, hold that the CIT s order u/s 263 is without jurisdiction and is liable to be set aside - Decided in favour of assessee.

Issues:
1. Interpretation of Section 263 of the Income Tax Act, 1961.
2. Scope of Section 143(1) before and after amendment.
3. Validity of the notice issued under Section 263.
4. Jurisdiction of the Assessing Officer post-amendment of Section 143(1).

Interpretation of Section 263 of the Income Tax Act, 1961:
The case involved an appeal under section 260A of the Income Tax Act, 1961 against an order passed by the Income Tax Appellate Tribunal. The primary question revolved around whether the Tribunal was correct in quashing the order of the Commissioner of Income Tax passed under section 263 of the Act. The Tribunal held that the intimation under section 143(1) could not be considered erroneous for not disallowing expenditure related to earning exempted dividend income, as the law post-amendment did not provide the Assessing Officer with the power to make such disallowances. The Tribunal ultimately allowed the appeal, stating that the Commissioner's order under section 263 lacked jurisdiction.

Scope of Section 143(1) before and after amendment:
The Tribunal's decision was based on the understanding that prior to the amendment of Section 143(1) by the Finance Act, 1999, the Assessing Officer had wider powers to make adjustments if a claim was found prima facie inadmissible. However, post-amendment, the scope of section 143(1) was limited to an arithmetical exercise to determine tax due or refundable to the assessee. The Tribunal emphasized that the Assessing Officer had no authority to disallow any expenditure claimed in the return of income post-amendment, which justified their decision to allow the appeal.

Validity of the notice issued under Section 263:
The Commissioner of Income Tax issued a notice under Section 263, questioning the exclusion of expenditure related to earning exempted dividend income while computing the total income. The Commissioner relied on the judgment in a previous case to invoke Section 263. However, the Tribunal found that the notice under Section 263 was not valid as the Assessing Officer's actions were in line with the provisions of Section 143(1) post-amendment, and there was no error prejudicial to the revenue's interest.

Jurisdiction of the Assessing Officer post-amendment of Section 143(1):
The Assessing Officer's jurisdiction post-amendment of Section 143(1) was limited to an arithmetical exercise to determine tax due or refundable to the assessee based on the return filed. The Tribunal concluded that the Assessing Officer did not have the authority to disallow any expenditure claimed in the return of income while preparing the intimation under Section 143(1) post-amendment. Therefore, the Tribunal upheld the decision to dismiss the appeal in favor of the assessee, as the Assessing Officer's actions were deemed appropriate within the legal framework post-amendment.

In conclusion, the judgment highlighted the importance of understanding the amendments to Section 143(1) and its impact on the Assessing Officer's jurisdiction, ultimately leading to the dismissal of the appeal in favor of the assessee.

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